Home Buyers Advisory Blog

Offer to Purchase: 5 clauses you should NEVER agree to

Posted by Aidan-John Rothman on 12 Jul 2018 2:37:21 PM

Signing an Offer to Purchase can be really stressful and too many times buyers sign because they feel under pressure to make an offer on the spot - only to realise that they are not happy with what they signed. And then it is very difficult to cancel the deal, particularly if they have paid a deposit!

So, get advice from an independent expert or a lawyer before you sign.

Remember, although the estate agent may take you through the contract, agents are incentivised to make a sale and they are appointed by the seller.

Here are 5 clauses we have seen in recent transactions that you should NEVER agree to:

1. The estate agent gets their commission before the transfer is concluded 

In a recent transaction, a buyer with a large deposit of R 700 000 brought us an OTP that included a clause where the estate agent would be paid their fee on bank approval.

NEVER agree to this. Bank approval is just one step in the process toward being a homeowner and lots can still go wrong after this step. And if something does go wrong - you might have a tough time getting your money back from the estate agent!

The normal practice is that the estate agent gets paid on transfer of the property. Stick with this - it is fair on everyone!


2. Warranty that the estate agent was the effective cause of the sale if you have been shown the property by more than one agent

This is a common clause in many Offer to Purchase agreements and normally it is not a problem.

BUT, if the seller had an open mandate or employed multiple agents to sell the property then you need to be careful.

The clause basically says that you will pay the any double commission that the seller ends up paying if another agent can also show that they introduced you to the property.

So, if the seller had multiple agents and you visited the property with more than one of these, NEVER agree to this.

Simply delete the clause or disclose all the agents that introduced you to the property and make this the sellers problem.


3. Paying the deposit directly to the agent, seller or developer

If you can avoid paying a deposit, then don't pay a deposit! Irrespective of who you pay the deposit to, it is now at risk - you know the old adage about "possession is nine tenths of the law".

But there are instances where you will need to agree to pay a deposit. The most common are:

  • To convince the seller that you are a committed buyer and that you have the financial means to make the purchase
  • To supplement the value of a loan so that you can afford the purchase price
  • As a holding deposit if you are buying off plan

It is not always possible to avoid paying a deposit - particularly if the property is in high demand, but aim to ensure that you only have to pay the deposit once your loan has been approved. In that way you don't have to go through the process of getting refunded if you can't get the finance.

And if you do have to pay a deposit NEVER agree to pay it to the agent, the seller or the developer. Rather make arrangements to pay this into a trust account of the conveyancing attorney.

Estate agents, sellers and developers may be conflicted if it comes down to deciding whether and when to return your deposit as they may believe that they have a claim against your deposit for commission or damages if the deal does not go through.

The conveyancer has no direct claim to your deposit (although they may have a relationship with the seller, developer or agent) and in addition lawyers need to meet high standards of ethical conduct so they are likely to be more objective in dealing with you money.

The money is also paid into a trust account and so even if the lawyer goes out of business your deposit will be protected.


4. Allowing the seller to cancel your offer if they get an unconditional offer

We have recently seen quite a number of Offer to Purchase agreements that include a clause that says that if the seller gets an unconditional offer (i.e. a cash offer) before you get approval for your loan, then the seller can effectively cancel your agreement and accept the cash offer.

This can make the buying process very uncertain and opens up opportunities for abuse where a seller can use this clause to try and get out of a deal with you by "manufacturing" a cash offer if they want to cancel your agreement for any reason - like a better offer.

The seller should have no "outs" once they accept your offer and so NEVER agree to any clause that would give them an out unless it is with your subsequent agreement.


5. Taking cession/ownership of the developers claims against any building material suppliers 

Taking ownership of something may seem like a good thing but if you are buying in a new development, do not let the developer sneak this one past you!

It is just a sneaky way for the developer or builder to try and avoid having to deal with or meet their warranty obligations.

If you have problems with any aspects of the house after you have moved in the developer might say - "There is nothing I can do - I have given you the rights to claim against the supplier - so you need to solve the problem yourself"

WARNING - NEVER agree to this! And it might be a sign that you are dealing with an unscrupulous developer... move on and find a different developer.

Topics: Offer to Purchase